I have cash but a low salary. Will a co-op board reject me?

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I have good credit, cash for the down payment, and a good job but relatively low income. Do I still run the risk of being rejected by a co-op board?

Answer:

A co-op board may well reject you based on your relatively low income (and they are within their legal rights to do so), say our experts. "The sale of a co-op apartment is governed by the terms of the proprietary lease," explains Kevin McConnell, an attorney with Himmelstein, McConnell, Gribben, & Donoghue. "The proprietary leases for nearly all co-op buildings provide that the Board of Directors can withhold consent to a transfer for no reason or for any reason."

A low income may raise questions about whether you can reliably cover your monthly maintenance on top of your mortgage and other debts, no small a thing for a board that's considering the financial health of the entire building. "An individual with low income raises an issue about payment of ongoing maintenance, which is a legitimate concern and is not discriminatory and therefore the board would be fully within its right to reject on this basis," adds Dean Roberts, a co-op and condo attorney with Norris, McLaughlin, & Marcus.

The financial requirements—and the board's level of concern about your particular fiscal profile—will vary from building to building, though there are certain requirements you should expect going in. "There is no 'one size fits all' answer in terms of the financial qualifications required for co-op approval," says Sotheby's International Realty broker Gordon Roberts. "However, Manhattan co-ops demand significant 'after-purchase liquidity' – in other words, cash, stocks, or bonds on hand after your down payment, and sufficient regular income to cover the monthly maintenance, mortgage, and other recurring payments (such as insurance, loans, etc.)."

As a rule of thumb, says Corcoran broker Deanna Kory, many boards will want to see that beyond your down payment, you have cash and/or liquid assets to cover between one to three years of payments (including for other debts like student loans or car payments).

To get a sense of what you truly qualify for, says Roberts of Sotheby's, it's a good idea to meet with a mortgage broker ahead of time. "If you can get pre-approval for a mortgage, it will give you another piece of the puzzle of what price range to focus on, and you can ask questions about board requirements as it pertains to a particular property," he adds.

There are measures you can take pre-emptively to make yourself look like a solid candidate, however. When it comes time to apply, you'll want to offer some extra assurances that you're in good stead to cover all your monthlies. "You might explain in a cover letter (which an employer's letter will echo) that you are early in your career, and have guaranteed future raises or specific earning potential," advises Compass agent Shirley Hackel.

You could also offer to put a year's worth of maintenance in escrow, or if the board permits, have a family member or friend serve as the guarantor for your maintenance (though keep in mind that they'll also have to submit their financial information for this to work).

Ultimately, you have to find the price point and building that are the right fit for your financials, but don't think that your current salary will disqualify you altogether from buying a co-op.

"My experience has been that boards are of two minds on this issue," says Dean Roberts. While some will require a solid income in addition to a strong credit rating, he says, "Many will overlook low income if there are solid assets and a strong credit rating."

And unlike a condo, he adds, since co-ops have a primary lien on the apartment, they're able to sue and collect unpaid maintenance before a bank has any claims, meaning a buyer with a lower income is somewhat less risky proposition.

"Therefore, [with boards], my recommendation is that if an individual has strong credit and a good landlord-tenant record, that income should not be an automatic denial for approval."

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